It has been a year since Prime Minister Narendra Modi launched the 'Make in India' programme that promised to transform India into a global design and manufacturing hub. Undoubtedly, since then, the battle cry has been one of the most popular catchphrases across the corridors of government agencies and boardrooms of India and Global Inc. Has the campaign delivered substantial value to the country's manufacturing sector? Or have the past twelve months only been about fascination, verbal inspiration and little execution? The Dollar Business analyses 

 

Make in India – that would easily pass for a slogan used more like a vowel over the past year in speeches, conversations, talk shows and debates whenever the Indian economy or its manufacturing potential was discussed. And about a year after it was brought to public light, The Dollar Business decided to evaluate what still separates the promises made and those delivered on.

To begin with, it's quite interesting to note that the Make in India concept is actually older than what masses believe it to be; you're right, much older than a year! A month after PM Modi-led NDA government assumed power at the Centre, Make in India was born in idea. It took some time though for the abstract form to take shape on paper and be portrayed across public forums. Its usage in global promotional campaigns to project India as an investment destination and a high-potential manufacturing hub officially began only a few months later, in the last week of September 2014.

So, it took four long months for the idea to assume visible form. But once announced, the euphoria it generated and popularity it won, got many to believe that Make in India will become the platform that will give India the licence to announce its superiority to the Chinese factories some day, some day in the near future. And talking about the believer lot, we just don't have our fingers pointed at loyal followers of BJP-led policymaking wings, we're even referring to those who did (and still do) swear by pragmatism and the philosophy of balance sheets and manufacturing output implying business performance, on domestic or foreign soil!

No doubt, when announced, Make in India seemed a timely response to a precarious situation, more of a 'macroeconomic' freeze, threatening to bring about a future altered and fraught with danger for the manufacturing community in the country. During the two years leading to FY2014, there were enough signs of a seemingly chilblained market for those with their feet on the streets. During that time, many European nations remained teary-eyed, China continued to steamroll, and America was busy with QE3. And India? Its manufacturing sector was busy gulping down tough times.

Numbers talk. The manufacturing sector in India performed poorly during the months that preceded Modi's ascension to the top post in India's democratic setup. As per DIPP, while the manufacturing sector slowed down to a ridiculous 3% and 1.3% during FY2013 and FY2014 respectively (as compared to a noteworthy 8.9% in FY2011), the overall Index of Industrial Production (IIP) gave reasons for greater discomfort with signs of a weaker-than-ever economy (from 8.2% in FY2011, overall IIP fell to 2.9% and 1.1% in FY2012 and FY2013 respectively – how about that for a vertical drop?).

So, the idea to arrest the fall, with a campaign that would boost entrepreneurship in India, in both the manufacturing and service sectors, was rightly timed. And how? By a four-pronged strategy – focusing on “New Processes”, “New Infrastructure”, “New Sectors” and “New Mindset”. These were the four basic pillars on which the “Make in India” initiative was based. That was September 25, 2015.

A year later, today, all questions are being asked about the efficacy of Make in India. Has it been able to deliver what it promised? Has it been able to develop strong support mechanisms and garner institutional investments that were the very basics of its existence? Have foreign investors shown some excitement to the plan? Are MSMEs reporting some better treatment at the hands of the government? Or... has Make in India remained just an on-paper plan?

The Report Card

A quick look at India’s Index of Industrial Production and Use-based Index and the picture becomes clear. During the past fiscal and first quarter of FY2016, while the General Index rose by 2.8% and 3.5% year-on-year respectively (against 1.1% in FY2012), the cumulative growth in the three core sectors – Mining, Manufacturing and Electricity – witnessed an annual increase of 1.4%, 2.3%, 7.8% and 0.6%, 4.0%, 2.6% respectively (against -2.3%, 1.3% and 4% respectively in FY2012). Even in the ten months leading to July 2015, after the Make in India campaign was announced, the overall IIP witnessed an improvement of 3.2% over the same time interval ending June 2014.

Growth figures from the manufacturing industry also showed a far improved response to the Make in India war cry.The sector marked an improvement of 3.24% y-o-y in the Oct 2014-Jul 2015 period.

Although these numbers look impressive (if we compare them with last year’s figures), economists and experts aren't convinced about the progress story. “India’s industrial production growth is still below the 7% to 8% needed for India to grow at potential. Manufacturing remains hamstrung by a lack of investment. Government reforms aimed at supporting the sector look unlikely to gather pace, putting a dampener on India’s long-term manufacturing outlook,” states a Moody’s Analytics report. This becomes a real concern when seen in conjunction with the rising manufacturing prowess of other comparable Asian economies.

A Panacea

Interestingly, foreign direct investment (FDI) trends too give an indication that the Make in India bandwagon hasn't jumped the track. According to the recently released 'World Investment Report 2015' by the United Nations Conference on Trade and Development (UNCTAD), India received $34 billion as FDI in CY2014 – a 22% rise from the previous year. “Government’s policy efforts, for instance the launch of the 'Make in India' initiative, launched in mid-2014, is helping the Indian manufacturing sector to gain strength and attracting global companies to produce locally in India. And as an expected economic recovery gains ground, FDI inflows are likely to maintain an upward trend in 2015,” the report states.

Of course, India has a long way to go before it catches up with China (the country attracted $129 billion as FDI in CY2014 apart from dislodging US as the highest FDI attracting nation) and a few billion dollars of FDI are just a drop in the ocean for a $2 trillion economy like India, but then a year-on-year jump of 22% and moving 6 ranks up, from 15 to 9, in the list of 'Top 20 Host Economies' (in terms of FDI inflows) is something to cheer about. Even if you compare the 9-month period (Oct 2014-Jun 2015) following the announcement last year to the corresponding period a year before, FDI into India witnessed an increase of 36%. This is certainly a testimony to the fact that Make in India campaign has started making some noise overseas. But if noises would suffice, the ongoing GOP debate nights in the world's largest economy would have meant little as indications leading to the US Presidential elections!

If India wants to attract serious amounts of FDI, it needs to undertake massive reforms. It’s the complexity of the Indian tax system and frequent changes in tax laws that have discouraged both domestic and foreign investments in the country. Costs and time needed to comply with the tax system are also relatively high in India. “The current system of taxation leads to distortions to the detriment of domestic manufacturers. While the difference varies across states, the overall tax and duty structure can cause a 17% cost disadvantage for domestic manufacturers,” states a Boston Consulting Group report.

Further, India is not really known for being a protector of intellectual property rights. Many potential investors are wary of transferring their technology to an Indian subsidiary. [Why would they in an environment of insecurity?] All this needs to change if India really wants to gain lost credibility and attract serious amount of FDI.  So, what's the doctor's prescription?

Stop retrospective actions on taxes. Lower the tax rate. Offer additional incentives to foreign companies that are willing to engage in technology transfer with their Indian partners. And once these policies are in place, just leave them alone for good time (a decade or so)!

Retrospection. Now.

Though free market principles sound great in theory and there’s no dearth of advocates for them, they are a distant mirage in the world of international trade. Several manufacturers to whom The Dollar Business spoke to in the recent past are unhappy with India’s policy vis-à-vis free trade agreements (FTAs). They strongly feel that India needs to re-think its FTA policy, particularly when it involves a manufacturing superpower like China. And they are completely right. An FTA with, or involving, the dragon would only mean giving up more and getting less. In fact, it would be nothing less than a death-warrant for India’s manufacturing sector that has just started pulling itself up to its feet. What’s surprising is that India is already negotiating one such FTA where China is a party – Regional Comprehensive Economic Partnership (RCEP), which includes ASEAN bloc and the six states with which ASEAN has existing FTAs (Australia, China, India, Japan, South Korea and New Zealand). No doubt, if implemented, it has the potential to create a new paradigm for economic integration across Asia-Pacific region by creating a mega free trade zone. But at what cost? That’s a question, which New Delhi needs to find an answer to before it signs the pact.

A look at the number of Chinese products on which anti-dumping or safeguard duties have been levied upon by India, and it’s not very difficult to figure out who will have the clear upper hand if an FTA is signed between the two countries. If this isn’t convincing enough, here’s the classic case of China-Indonesia FTA. Until CY2006, Indonesia had recorded a trade surplus with China. The very next year, the China-Indonesia FTA came into full force. Starting 2007, Indonesia has been running a bilateral trade deficit with China! Does the Indian government want India to suffer a similar fate? Or does it plan to do away with duties called ADD or Safeguard Duty altogether? A stop needs to be put to any blindfolded approach to FTAs if Make in India is to witness youth!

Inverting inversion

There are also questions such as “Why is Make in India not linked to exports?”, “If it is, why isn’t it an integral part of the New Foreign Trade Policy 2015-2020?” pouring in from various sections of the foreign trade fraternity. There are anomalies in the current duty structure for intermediate and finished products, which create advantages for importers over domestic manufacturers. Several cases exist in various sectors where import duty on an intermediate product is higher than that on the finished product, which make Made in India costlier than imported products. For instance, while there is a basic custom duty of 10% on certain components of boilers, it’s just 7.5% on the final product, i.e. boilers. This affects the domestic boiler industry adversely. Another example could be insulin. While insulin injections attract a total import duty of 21.78%, insulin and its salts attract a total import duty of 25.85%, discouraging manufacturing of insulin injections domestically. “The issue has become even more pronounced as India is now a part of number of FTAs with countries like Japan, ASEAN and South Korea,” says a recent FICCI survey on inverted duty structure in Indian manufacturing sector.

This kind of a situation not only discourages an entrepreneur from setting up a manufacturing business, but also questions the intention of the government with regards to initiatives like Make in India. Due to such anomalies, Indian exports remain limited to mostly raw materials (like cotton, yarn, iron ore, slag, ash, etc.) or low-technology products. In fact, when it comes to the share of manufacturing value added (MVA) in GDP, India stands nowhere close to its Asian peers. While countries like China and Thailand can boast of over 30% MVA share in GDP, India’s share of MVA in GDP is just 14.9%. If this is the state of affairs in Indian manufacturing, why isn’t there any additional incentive for those who are promoting value-added exports from India in 'Make in India' (particularity of products for which raw materials are in abundant supply or resources are underutilised)? For instance, instead of exporting raw cotton (India is the second biggest exporter of raw cotton after US), why can’t we encourage exports of more readymade garments and other finished products of cotton? There are several such products which have the potential to bring in the precious forex for India. If “Make in India” has to become a reality, the country will have to move up the value chain to become an exporter of value-added/finished goods. FTAs mean losses to the Indian exchequer. Why don't we stop this direct loss and encourage the idea of incentivising exports on a greater scale from India?

Other questions remain to be asked. There seems to be nothing in Make in India programme that has been specifically designed to reduce import bill. Wouldn’t it be logical to come up with a list of products that, with a little government support, can be manufactured in India? Further, why isn’t there any scheme – such as duty free import of capital goods, interest subvention etc. – to specifically promote the Make in India programme?

Make in India 2.0

No doubt, the National Manufacturing Competitiveness Council (NMCC), which comes under DIPP, has set a target of manufacturing contributing 25% to the GDP by 2025 and creating 100 million jobs over a decade. But for that to happen, manufacturing will have to grow at a rate that is 2.4% higher than the current GDP growth rate. This seems a tall task given the current state of affairs.

Without strong support mechanisms and institutional investments, which seem to be missing as of now, phrases like 'Make in India' will remain phrases forever. Appropriate incentives and financial enablers – particularly for small and medium enterprises (SMEs; do read our Editor-in-Chief's letter in the first two pages of this issue) – that not only incentivise innovation but also promote value-added exports from India, are urgent needs of the day.

Agreed. All said, the 'Make in India' project cannot be straightaway branded another wishful thought. One can neither expect huge investments to pour into India all of a sudden, nor manufacturing to move several steps up in a matter of a year. Good things take time. Especially, when it's about results.

But twelve months is a fairly long time to evaluate whether an economy's manufacturing sector is on the right road to progress. And that's the attempt made in the next 32 pages of this cover story package. With rumours about 'Make in India 2.0' already doing the rounds, it’s time we got down to evaluating what a dozen months of announcements and buzz have resulted in. Flip on…

Auto & Auto Components - The Lion Hasn't Hit The Road. But The Roar Can Be Heard

One would ideally prefer many years to decide on the impact of Make in India at the factory level in the auto and auto component sectors. But given generous investments and positive perceptions, signs are, that for the sector, times, they are a-changin'.  The Dollar Business presents an exclusive analysis of what's cooking on the streets.

Octobar 2015 Issue | The Dollar Business Bureau

Come the next Auto Expo in India's capital city and the world will witness the unveiling of the first ever real super truck. 'Super' not because it's Made in India. But because it has all of human's imaginations crammed into a dozen-odd 5 nanometre (micro)chips, loaded securely in its hard drive-like alive engine. It's body – built of vibranium – is designed to defy the 1-G environment commonly found on Earth.

This dream truck is a 30 feet-long metal monster, painted in red, yellow and blue, and capable of fuel injection, radar detection and flight balance capabilities that enable it to withstand even a 1,000 feet-high drop onto the rocky mountains of Colorado.

"The next to next generation of automobiles is now!" goes the tagline of the brand. Built to look like the Peterbilt 379, this eight-wheeled, $8 million (Rs.50 crore) giant is the first rollout of MII Motors, an Indian micro enterprise that began with a seed capital of just fifteen lakh rupees. And the day it hits the streets, it will undoubtedly become the leading symbol of 'Make in India'! Perhaps Make in India should be rechristened: 'Make (the impossible) in India'.

Welcome to reality!

Alright.

Enough dreaming. Wake up!

Apparently, there's nothing like MII Motors and absolutely nothing of a wonder truck ready yet!

For a change though, how about this being a real news piece on the eve of the 2020 edition of Auto Expo in India?From an investment and ROI point of view – given the price attractiveness of a product that actually costs a fortune – this truck manufacturing project would only mean "pure ambition" (something that comes to mind each time we hear or read about Richard Branson's Virgin Galactic or Elon Musk's SpaceX ventures). 

From a nation's point of view however, a creation as such would be – "ambition turned reality". Actually, in the case of India, 1.3 billion hopes and dreams coming alive... Dramatic!

So in reality, is India's automobile industry expecting something remotely close to what MII Motors almost delivered in fiction?

A year after PM Modi unveiled the Lion, the move forward in the automobile industry seems all a work-in-progress. Sometimes, it takes just one bullet, one strike of the ball or one drug dose extra to turn history. In the game of making India a power house in the automobile sector however, small measures won't do. Volume has to complement value – and both have to be recorded in overwhelmingly!

Mixed Response

A quick analysis of how the Indian auto and auto components industry fared after the Make in India campaign was formally announced leads to some surprising findings. In the nine months leading to June 2015, the weighted average monthly y-o-y change in the Index of Industrial Production (IIP) of the automobile sector was +0.7% – an improvement of 1.8% as compared to the same time interval ending June 2014. The overall sector however saw mixed performance with auto components witnessing a slowdown in average monthly y-o-y growth in IIP during the nine months leading to June 2015. The sector grew at 0.1% as compared to 0.8% during the pre-Make in India days, a year back. Growth figures from the industry therefore show a mixed response to the manufacturing war cry.

But IIP figures don't really tell the complete tale – and going by what's expected in times to come, these may actually be misleading. In fact, very misleading!

The Acid Test: Capacity

Production trends also give an indication if something is glaringly wrong. During FY2015 (which included more than six months of the campaign), the total units of automobiles manufactured crossed the 23 million mark – higher than during any other year in the past. But if we look at just the two key high value returning products (for manufacturers and exporters alike; four-wheeled passenger and commercial vehicles), production numbers fell short of even the FY2011 mark. Production fell in a situation of reduced domestic consumption, which again was lower than in FY2011. Exports on the other hand rose steadily for Indian PV and CV manufacturers (that was another surprise, because every time one hears about global buyer sentiments, one always ends us blaming EU and US).

What has become an interesting claim amongst all Make in India advocates in the auto sector is the value of promised investments by both foreign and Indian auto giants. What are the figures like? While SIAM forecasts investments amounting to Rs.94,687 crore until 2020 by 16 automakers (the highest being by Maruti Suzuki, GM, Ford, Tata Motors and M&M), a report by PwC claims that in the past year, ten automakers have already invested over Rs.31,000 crore and two-wheeler companies over Rs.8,500 crore to add on to their existing production capacity.

So, if the acid test of Make in India in the first year is new capacity installed, the Indian automobile sector will be enough inspiration for NASA!

What doesn't however make sense here is the plot.

What will the automakers do with all the additional capacity? At present, Indian automakers are only utilising 65% of their existing capacity (as per SIAM), and addition of over 2-3 million more units in capacity isn't going to guarantee either employment or Make in India! [What's worse, of all the automakers, only three – Maruti Suzuki, Hyundai and Honda are operating in the 80% capacity utilisation range; GM, Fiat, Tata Motors, M&M and Skoda are operating in the sub-50% range!]

Overcapacity is the dream killer here.

With India's auto exports (of all four wheelers, except two wheelers) stagnating in recent years, with domestic market for four wheelers forecasted to stay below the 5 million mark by 2020, and with China expected to have about 11.4 million units of idle capacity by 2017, auto making will not serve the Make in India dream.

Parts make a whole?

The story for auto component manufacturing industry however is sweeter. Despite the not-so-rosy new automobile market predictions globally and in India, the automobile aftermarket (including replacement parts and accessories) is all set for a boom.

Having grown at a CAGR of 11% in the last five years, turnover for Indian auto component manufacturers is expected to increase two-fold to $115 billion by FY2021 (from the current $38.5 billion; as per Automotive Component Manufacturers Association of India, ACMA). In terms of exports too, the auto component story is one that's spirit lifting.

With revival in demand for OEM products across CV and PV segments around the world, exports of auto components from India are projected to rise from $12 billion in FY2016 to $30 billion by FY2021 and $40 billion by FY2025, making India the world's third-largest supplier in this segment! Now that's some reason to feel secure.

Better still, the auto component industry employment base in India (given the multi-crores of rupees in investments over the next few years) is set to rise far above the present 19 million mark with at least two to five million jobs added indirectly and directly by 2020 if all investments go as planned.

Acid Test (Again!)

Judging by the downpour of investments in the auto component sector since the Make in India campaign was announced a year back, this less glamorous cousin of the automobile industry seems to be as much discussed across boardrooms of multi-million dollar businesses.

To quote an example, as per a PwC report, just tyre companies have invested over Rs.7,300 crore in capacty building in India in the past 12 months. Talking about other components, names like Bharat Forge, Motherson Sumi, Sundram Fasteners, Bosch India, and others don't just have their crores of rupees in investment planned to expand their respective component manufacturing capacities. The companies are forging newer relationships with global OEMs besides exploiting 'Advantage India' to make cost-effective, high-quality, conventional products to be exported to markets like Latin America, South Korea, etc. to boost exports.

Announcements like ArcelorMittal signing a JV agreement with SAIL to put in place an auto steel manufacturing plant in India, MRF and Michelin planning to raise their tyre-making capacity this year, BMW promising to use at least seven Made in India auto parts in its vehicles starting this year, etc., are only proofs of prosperity (given the rising global demand) in the auto aftermarket being imminent.

Vital indicator

The Make in India campaign has certainly set aspirations soaring in the automobile industry. There's positive talk of capacity building and billions of domestic and foreign money flowing into new and existing manufacturing plants across various auto belts of India.

And 12 months may not be too appropriate a time window to decide on whether vital indicators in the industry have started appearing far more appealing. But, signs are definitely positive.

FDI could be one. If the trend of FDI in the automobile industry continues in the manner in which it has during the first quarter of FY2016, we will close the year at Rs.27,656 crore of foreign investment in asset building in the auto sector – 75% higher than in FY2015, 207% higher than in FY2014, 230% higher than in FY2013, 535% higher than in FY2012... Allow us to give you a better piece of comparison: the total FDI in the auto sector in two years leading to FY2016 could exceed that seen during the eight years between FY2007 and FY2014 (Rs. 43,450 crore and Rs.42,394 crore respectively)!

Isn't that sign enough that Make in India – be it a mere announcement for many – has made a positive impact on the sentiments of foreign investors and the potential of the automobile sector
of India?

The Lion's out...

The jury is still out to decide the wholehearted inclusion of MSMEs in the march forward. But for now, let's just conclude that with sentiments and investments on the rise, the Make in India lion seems to be actually walking out of the paper to make its presence felt on
the roads!

And how about the dream truck that India could make in future? Well, forgive our imagination. For us, the 'Make in India' passion means nothing short of 'Transformers' and 'Optimus Primes' hitting India's autobahns, while the developed West pays to buy Made in India technology and hardware on wheels!

 

Mining - So Much Potential. Yet So Much Left

Despite being a repertoire of mineral resources, there is a huge chasm between potential and exploitation in India. The production is still much below par and ironically India is dependent on import of several minerals, like iron ore and coal, provoking the inevitable question: Why is it so? Hasn't "Make in India" been of any help to the sector?

Satyapal Menon | October 2015 Issue | The Dollar Business

The pattern of productivity of India's mining sector [for uninitiated, India produces 88 minerals – 4 fuel-related minerals, 10 metallic minerals, 50 non-metallic minerals and 24 minor minerals], over the last few years, presents the picture of a plateau with nothing conspicuous to reflect the breaking out of type. But still, during the past one year, expectations are on a high as transformation (of the sector) is on the government's agenda, all thanks to the "Make in India" initiative. Nevertheless, the question remains – whether there are genuinely any changes happening to translate the promise into action. Or, the initiative means nothing to the sector but yet another announcement?

All is not well

For numbers, the mining sector recorded a GVA (gross value added; at basic prices) of Rs.73,289 crore during FY2015, an increase of about 4% from Rs.70,488 crore recorded in FY2014. For Q1 FY2016, GVA from mining and quarrying sector grew by 4% as against a growth of 4.3% in Q1 FY2015. However, nothing much seems to have changed for the sector since Make in India campaign was formally announced in September last year. In the nine months leading to June 2015, the weighted average monthly year-on-year change in the Index of Industrial Production (IIP) of the mining sector was +0.1%, a deterioration of 0.1% as compared to the same time interval ending June 2014.

Agreed, that 12 months are really not enough to figure out the real impact of a policy initiative on one of the core industries groups of an economy. But then, it's not too less a time to see the signs of change. Foreign direct investment (FDI) trend too indicates that Make in India campaign has been of little help to the sector. Foreign investors continue to shy away from Indian mining sector. During FY2015 (which included more than six months of the campaign), FDI inflows into the sector were down 20.33% year-on-year to $472 million from $568 million in FY2014. In fact, three months into FY2016, and the FDI stood at just $133 million. If FDI continues to flow in at the pace at which it is flowing in at the moment, it would be difficult to even catch up with the last fiscal's figure. Interestingly, FDI into the sector has been on a downhill drive since FY2013. What's more? Cumulative FDI inflows, from April 2013 to June 2015 are just 65% of what the sector attracted in FY2012 alone.

Unchanged Patterns

A nearly consistent increase in production values during the last three fiscals and a declining production growth rate indicate that Make in India is yet to seep in through the sector. Interestingly, only two major sectors – iron ore and coal – have been maintaining status quo in terms of demand and supply situation in the country. Despite ample resources India’s dependence on imports has only been increasing and the last one year, since Make in India – which was aimed at reducing reliance on imports – has been no better. Decline in coal production could be attributed to ramifications of Coalgate scam and its aftermath. However, the Supreme Court directive last September, to call for fresh auction of coal blocks, have revved up the government machinery to step up the process post-haste. Between October 2014 and July 2015, the government has auctioned several coal blocks and garnered over Rs.2,00,000 crore.

The Big Question

But whether these measures would ramp up the coal production to self-sufficiency levels remains to be seen. India’s two coal producing majors – Coal India Ltd. (CIL) and Singareni Collieries (SCCL) have maintained a track record of either over-shooting production targets or achieving an average of 97% monthly targets since the announcement of Make in India campaign. That's definitely a good sign! Further, the average IIP for the mining sector under two digit code 27 (Basic metals) between October 2014 and June 2015 registered a month-on-month average growth of 11% over the corresponding period last year. However, IIP for other non-metallic mineral products under two digit code 26 registered a de-growth of 2.4% between October 2014 and June 2015 over corresponding period last year. Although patterns are positive in terms of growth, they cannot camouflage the fact that exploitation of mineral resources vis-à-vis available reserve potential is much below par and there is a lot desired to be done.

Cascading Impact

According to a McKinsey report presented at the Confederation of Indian Industry (CII) Mining Summit 2014, “while demand continues to create the ground for a robust mining sector, it is not supported with requisite supply. Without accelerated growth in mining, India will have to rely on heavy imports – 175 million tonne (MMT) of iron ore import per year (11% of the global seaborne market), 300 MMT of thermal coal import per year (25% of the global seaborne market) and 70 MMT of met coal import per year (22% of the global seaborne market) by 2025. This is also bound to put upward pressure on the global pricing of these commodities as well as increase the forex spend on account of thermal coal, coking coal and iron ore to $58 billion. This is a staggering 180% of today’s current account deficit.”

Tech Deficiency

The report also emphasises on the need for advanced technology to mine resources that are difficult to access. “Deep seated resources (e.g., coal) or minerals located in eco-sensitive areas have not been considered for mining due to lack of advanced and eco-sensitive technology. As an example, the Jharia coal block, which has large coking coal resources that can help meet steel industry coking coal demand, is un-utilised due to the ongoing fire. These resources can be accessed using advance underground mining technology and new mining techniques.” Certainly some invaluable suggestions! Considering the fact that environmental clearances are hard to come by, which is justified in view of the impact of mining on forest resources and negative effects on the ecosystem.

No Takers

Latest technologies and expertise could be the solution, but there does not seem to be many takers of the invites being extended by the Indian government, for foreign collaborations. Is it because foreign players continue to view India as a grey area and fear the risk of getting trapped in the notorious bureaucratic rigmarole after starting the venture? Or is there something else that is to be blamed for this situation?

 

This apart, there still seems to be a huge gap between realising that "there are needs" and realising "what actually those needs are". A clear impact of this mentality can be seen on India's steel sector, which has been reduced to a state of stagnation and is operating way below its potential, despite there being a huge quantum of iron ore resources in the country remaining untapped. The situation is absolutely incomprehensible! The will and intention does exist in Make in India, all it needs is a real push to make it a reality.

Electrical & Electronic Equipment - So Close, Yet So Far From Making

Vanita Peter D'souza | October 2015 Issue | The Dollar Business

Electrical and electronic goods have emerged as major export items from India over the last few years. However, despite an impressive growth, the gross manufacturing value addition in these sectors has always remained at abysmal levels. Has Make in India help reverse this trend and boost production of value-added products?

The front page of our national dailies no longer cover news, more often than not they are filled with full-page advertisements of new launches of better and smarter phones and durables. Smartphones and tablets have replaced personal computers and laptops. It’s not just our phones that have become smart, but appliances like televisions, washing machines, air-conditioners, switches, fans etc., have also joined the league. As the Indian consumers’ appetite for consumer durables keeps growing, the sector has seen the entry of all the major global players. India imports electronic items worth $100 billion every year and, according to the government's estimates, at this rate, by 2020 it could touch $400 billion, possibly surpassing the bill on fuel imports, and that is a disaster that should be entirely avoidable.

A Nosedive!

A quick analysis of how the Indian electrical and electronics component industry fared after the Make in India campaign was formally announced reaffirms the belief. In the nine months leading to June 2015, the weighted average monthly y-o-y change in the Index of Industrial Production (IIP) of the electrical sector was +1.3% against +2.1% change witnessed during the same time interval ending June 2014.

The condition in the electronics components sector was even worse. In the nine months leading to June 2015, the weighted average monthly y-o-y change in the Index of Industrial Production (IIP) of the electronics component sector was -8.2% against -4.7% change witnessed during the same time interval ending June 2014 indicating a massive fall in the production of electronics components in the country.

A New Dawn?

Going by government sources, the electronic manufacturing sector has enormous investment potential and has already received proposals worth Rs.90,000 crore in the last few months. A significant part of these have been from mobile manufacturing firms, both global and local. While players like Samsung, Micromax and Spice have been assembling handsets in India, firms like Lava, HTC, Asus and Gionee have also evinced interest in setting up their manufacturing base. Foxconn, the company best-known as the manufacturer of iPhones has announced a $5 billion investment in Maharashtra over the next five years. Foxconn’s commitment is a sign that India is ready for manufacturing quality and yet cost effective electronics. With wages in China on the rise we may see more such large investments from giant Chinese and Taiwanese contract manufacturers coming our way.

To give a boost to manufacturing of electronic items, the government has also extended the 'Modified Special Incentive Package Scheme' (MSIPS) by five years and also expanded the scope of the programme to cover 15 new product categories that include smart cards, consumer appliances, fibre optics and The Internet of Things products. As per Telecom & IT Minister Ravi Shankar Prasad, this sector has the potential to create 2 crore 80 lakh jobs, given the right incentives and regulatory framework. So, what are we waiting for? For it's the government itself that has to dole out right incentives to boost production!

Reality Check

The situation on the ground though is not very rosy for electrical machinery, equipment and parts industry. According to the International Trade Centre, between October 2012 and June 2013, India exported electrical machinery, equipment and parts (HS codes of chapter 85) worth $7.83 billion, which slipped to $7.43 billion during the same months of the following year to $7.43 billion. In September 2014, PM Narendra Modi launched ‘Make in India’ campaign and the industry was expecting to at least receive the much needed push. However, the recent figures state that the push is still missing. Between October 2014 and June 2015, exports collapsed by 17.9% to $6.1 billion. What this means is that only policy frameworks would not be able revive this sector.

There is an urgent need to bolster the well-meaning policy framework through proper execution, creation of the right ecosystem for product design and development to get the sector back on track. Intellectual Property rights need to be protected for global and even local telecom players to confidently take up design of local systems. The sector also needs a reliable infrastructure and access to low cost funds. More importantly there is a need to boost domestic demand, and this can be structured through easily available consumer loans for electronics and appliances. Once these factors are in place the electrical and electronics manufacturing would have all reasons to localise production and to make the dream of ‘Make in India’ come true.

Defence & Aerospace - Still Flying Without Wings, It Seems

Decisions to open up the defence sector to foreign entities have often been dead-ended or archived because of it being a matter of national security. But priorities of necessity are transforming the policymakers' mindset who are now taking pragmatic steps to attract investments into the sector. Is it the "Make in India" effect?

Satyapal Menon | October 2015 Issue | The Dollar Business

Call it sentiment or national security concerns, India has a history of allocating no-limits barred budget for the defence sector. And, FY2015-16 Union Budget wasn't any different that upped the allocation to Rs.2,46,727 crore accounting for a 7.7% increase over the previous. Today, defence spending accounts for 1.8% of the country's GDP with 40% of it allotted for capital acquisitions. A huge chunk of the spend on defence gets consumed by imports due to deficiency of indigenous technologies, and to add to that, any genuine effort on the R&D front – except for some semblance of technology upgradation process happening in some public sector defence organisations.

However, India has started witnessing fast-paced developments in both the defence and the aerospace sectors, particularly over the last one year, as a result of the open door policy adopted by the Modi government, complemented by the "Make in India" campaign. This is reflected in the fact last year there were three major collaborations between foreign and Indian entities – Airbus Helicopters and Mahindra Defence Systems for a $41 billion project to manufacture helicopters, Rafaut and LH Aviation of France and OIS Aerospace Group for developing advanced weapons-to-aircraft interface devices and multi-sensor tactical UAVs, and L&T-Tata Power and BEL-Rolta for the $8 billion battlefield management system project. What's more? With Rs.250 billion up for grabs over the next 7-8 years under Make in India initiative, there are reportedly many other major players like Reliance ADAG, Godrej, Adani Group etc., which are making a beeline to secure contracts.

Proactive Policy

The government has also been giving a ready ear to suggestions from the industry to further fine tune the policy and provide an enabling environment for both Indian and foreign entities. It has already increased the FDI limit from 24% to 49% and recently relaxed declaration norms in the offset policy which had earlier mandated foreign companies to mention its Indian partner’s name and also other details related to project being awarded. Once the projects come to fruition the spin-offs from the open door policy could be quite considerable. The 30% offset policy may result in many SMEs sprouting on India’s firmament. In fact, according to reports, Indian companies have already signed 25 offset contracts valued at $4.87 billion. There are 44 more contracts under various stages of procurement with a potential value of $15 billion for discharge until 2028.

IS IT, Really?

So far, so good! But then, has changing the cap from 26% to 49% really changed the fortune of this sector? "Nothing much," feel industry insiders The Dollar Business spoke to. "As defence manufacturing industry is complex and requires significant investment in R&D, quality systems, and manufacturing technologies, many manufacturers may not risk the loss of control in a venture by holding less than 51% equity," said Pratyush Kumar, President, Boeing India, in a recent interaction with The Dollar Business. Therefore, cases where the controlling stake is essential for the business case, this change may not be sufficient to unleash a new wave of FDI into the sector and in turn really boost the manufacturing of hitech defence and aerospace products within the country. What better testimony to this could be the fact that since opening up of FDI in defence sector, only 34 proposals involving FDI amounting to $1.31 million had been approved till July 31, 2015.

Although the introduction of the Defence Offset Policy in 2005 and its subsequently revised versions have brought some relief to manufacturers (till July 31 2015, government had issued 287 Industrial Licenses for manufacture of a wide range of defence items to Indian companies), the backlog of $5 billion in offsets, which is yet to be awarded to private Tier II and III suppliers in India (as of date), is a clear sign of the policy’s inefficiencies. Further, at the same time, it is important that both policymakers and investors understand that ‘Make in India’ becoming a reality in this industry will result from global defence and aerospace companies sourcing from India out of choice and not due to offset mandates.

In the defence and aerospace manufacturing industry, India is still looked upon as just a sub-contract-hungry, tier III supplier of components. Infrastructure and policies need to be worked on if this perception has to change.

There are several industry players like Dr A. N. Gupta, CMD, Premier Explosives Ltd., who feel that it is too early to judge or say anything on the impact of the change, but he is sure that everybody is working towards the same objective, including his company. “Earlier, Indian companies were not considered for defence requirement, but now, with the amended defence procurement policy, emphasis is being laid on ‘Make in India’, buy and make in India, and then the foreign players. So now, if any domestic company says that it has got the technical know-how and can supply the defence items, then in that case it will be given the preference,” says Gupta.

The Big Leap

Although "Make in India" campaign has been successful in creating the much-needed buzz for Indian defence and aerospace industry, lack of depth in technology is one of the biggest factors that is impeding these sectors from taking that big leap. Most Indian manufacturers are still stuck at the basic or intermediate level of technological capabilities, which places them way below their global counterparts in the manufacturing value chain. Hence, policymakers need to bridge the technology divide that exists between Indian manufacturers and their global peers. Greater incentives for R&D, investments in building technology infrastructure and promoting strategic joint ventures (JVs) and an assurance about protecting patents and IPRs – for which India has a dicey record – of JV partners is all what is required if policymakers really want "Make in India" dream to take shape!

Textile and Leather - the lion is still learning to wear kurtas & sandals...

The jury is still out on whether ‘Make in India’ has done much good to the textile and leather industries. While it's still early days in the campaign, increased activities have been seen in the forms of investments and announcements. The Dollar Business analyses how and why the past year may have been different for the two industries.

Shivani Kapoor | October 2015 Issue | The Dollar Business

Imagine India's high-end 'fashion on textile' designers – like Ritu Kumar, Rohit Bal, Tarun Tahiliani, Neeta Lulla, Rina Dhaka, et al. – coming under one roof to lend a helping hand to the weavers of Varanasi – the constituency of PM Modi (yes, its MP is the PM!). Or better still, going by how the Make in India blueprint was supposed to eventuate, how about adding some 'foreign' names from amongst the crème de la crème of the world of 'fashion on textile and leather' like Domenico Dolce, Michael Kors, Steve Madden, Stefano Gabbana, Donatella Versace to that hallowed club! What would it do to the textile and leather manufacturers of Varanasi, Solapur, Tirupur, Bellary, Agra, Kanpur, Kohlapur, and many such pockets across India, where manufacturing as such isn't a fact unknown. They still weave and tan what they get and export them too! But they need greater impetus that is planned to provide them something more than just livelihoods. They need to have 'Designed in India' more popular across the globe.

‘Make in India’ was supposed to be the change – that would bring in the needed many many crores of corpus, technology, machinery, education and training...and establish India as a manufacturing giant in the textile and leather industries forever!

Let us take the textile industry for once. As per an IBEF August 2015 report, "Make in India campaign was launched to attract manufacturers and FDI in the textile sector." Manufacturers anywhere are always attracted to a business viable. There's no discounting that. But how about FDI? Has the magic spell been cast upon foreign investors?

With PM Modi leading the campaign from the front, and with visits to foreign soil aplenty, you would expect the foreign investment numbers to have overwhelmingly escalated. FDI data proves otherwise. Instead of frog-leaping, in FY2015 (which saw Make in India age by more than 6 months), FDI inflow in the textiles sector actually fell 18% y-o-y to $162.91 million – lower than what it stood at three long years back in FY2012!

Encouraging Signs

That FDI fell in the year in which Make in India was announced doesn't however mean that the project hasn't failed to inspire the textile industry.

In the nine months following the announcement, $193.15 million poured in from foreign lands into textiles (including dyed and printed materials) – as rise of over 47% as compared to same period a year back, and the highest witnessed during the Oct-Jun period in the past decade! Going by IIP figures, indeed the weighted average monthly y-o-y change in the sector during the nine months leading to June 2015 shows a drop of 0.4% (0.2%; Oct 2014-Jun 2015 period), but productivity increases in volume and value will take time after investments have poured in and plant and machinery have been put in place. True inference –and only indicative to begin with – from IIP data therefore should not be attempted before FY2017 ends.

Announcements like Indian textile giant Arvind Lifestyle Brands signing a licensing with American retailer Aéropostale, Inc. to open stores in India, US-based home textile company Nextt, US retail chain GAP opening its first store in Delhi and planning to open 40 more stores in the next 4–5 years, and Swedish H&M launching its first outlet are positive developments. Why? For now, they may sell Made in China and Made in Bangladesh in India, but if scalability happens in India's textile and finished garments manufacturing sector at the plant level, these brands will prefer domestic procurements!

What’s more? The MoUs signed between India and countries like Canada, Belarus, Kyrgyzstan for skill development in the apparel sector and strengthening bilateral cooperation in the fields of textiles, and Chinese players joining hands with Brandix India Apparel City (BIAC) to facilitate direct investments in home textiles are signs of prosperity in the Indian textile industry. While Gujarat in collaboration with China is working on a plan to set up a textile park in Ahmedabad’s Sadanand, the West Bengal government is likely to attract around Rs.37,000 crore through textile clusters or parks over the next three years. Down South, while Karnataka is in for a slew of cumulative investments of over Rs.2000 crore in the sector, the Southern India Mills Association has inked MOUs with the Tamil Nadu government to set up two dedicated textile processing parks.

The turn of events reaffirm beliefs that order books of manufacturing companies in the Indian geography may be inundated with 'finished textile' contracts! If that happens, you might just see a lion donning a tricoloured Modi kurta! How about that for a real impact of Make in India on textile manufacturing in India?

Prediction of the domestic textile and apparel industry size to rise from the current $67 billion to $141 billion by the time the first five years of the Modi government comes to a close, and expectations that exports will more than double from the levels of CY2014 to $82 billion by then, do raise expectations of what Make in India will do to the sector. To get a first hand experience of how the government is working to have matters materialse in the sector, The Dollar Business quizzed V. K. Vijayaraghavan, Head, India Operations, Raha Poly Products Ltd., who has worked closely with Uday Munjal, one of the key members in Modi’s ‘Make in India’ team and reports directly to India's Commerce and Industry Minister Nirmala Sitharaman. He says, “The government is really working to materialise things. I have got my personal experience with Uday Munjal. On a particular instance, he spent 17 hours with me to help me meet top government officials with whom I discussed my investment plans. However, government should also work on giving concessions. Interest rates have to come down, and tax structures should be made more
investor-friendly.”

Good Signs?

In the leather industry, there's better news in terms of interest shown by foreign investors. FDI in FY2015 jumped about 500% to touch $36.5 million. As compared to a year back, in the nine months leading to June 2015, FDI inflow rose by 530% to $27.13 million, and monthly average IIP increased by 0.2%.

Exports too have moved up the ladder. In FY2015, exports of leather showed a rise in excess of 10% to $6.5 billion. Though it's unlikely that encouragement from Make in India campaign has begun yielding results so quickly, interested investors in India's leather manufacturing industry can take this as a positive sign. Assuming that that happens, the Council for Leather Exports claims that India's exports of leather products could touch $18.5 billion by CY2020. Fingers crossed!

Efforts are on to make making leather products in India a smashing runaway hit. A leather park is being set up in Nellore in Andhra Pradesh with an investment of $200 million (already 43 leather product maufacturers have been granted licence to operate out of the park) which will get operational by FY2017, decision on a proposal for initiating a leather development programme (called ILDP – Indian Leather Dev. Prog.) amounting to $183 million is pending with the government, setting up of another leather park in Uttar Pradesh with an outlay of about $40 million, etc., are evidences that there is still much work-in-progress as far as Make in India doing good to the leather industry is concerned.

From YSL to Ann Taylor, from Hermes to Prada, from GAP to Nike, from LVMH to Aldo – India has forever served international brands as a factory for leather and textile products. And it's been as much a case of giving to sell within the national territory, as it's been about exports. But in recent years much threat to India's dominance in these industries have come from Asian peers – it's time we put an end to these doubts.

And unlike in many sectors where we're just beginning to learn the art, this one is already counted amongst India's core strengths in global trade. Perhaps that's what makes the challenge even bigger for Make in India – good to great. And in the past 12 months, we've just about begun scratching the surface of potential outcome.

 

Chemicals & Pharma - In Search Of The Secret Concoction

Despite being big forex earners for the country, these two industries – Chemicals and Pharmaceuticals – have never been able to realise their full potential, thanks to a lacklustre policy support. It's time the government realises their far-reaching potential and gives them what they deserve to help them Make in India.

October 2015 Issue | The Dollar Business Bureau

The one sector that had taken the slogan of ‘Make in India’ to heart long before Prime Minister Narendra Modi announced the initiative is the pharmaceutical sector. Indigenous production from being non-existent about 50 years back, India has today become one of the largest exporters of generics in the world. India has emerged as a world leader in generic pharmaceuticals production, supplying 20% of the global market for generic medicines. The industry today accounts for 8% of global production and is exporting to over 150 countries. When it comes to the chemical sector, while the growth has not been as spectacular as the pharma sector, the chemical sector accounts for about 10% of India's Index of Industrial Production (IIP) and is the third largest producer of chemicals in Asia. Naturally, therefore one would think that with the pharmaceuticals & chemicals being identified as two of the 25 sectors of the ‘Make in India’ initiative, these sector would take a big leap, in terms of both domestic production and exports growth. But have they? The Dollar Business takes a critical look at how the initiative has impacted these two key sectors.

Generics Powerhouse

The Indian pharmaceuticals market is the third largest in the world in terms of volumes. Branded generics produced in India dominate the pharmaceuticals market both in terms of domestic production and export consumption and constitute about 70-80% of the market. The industry with a 39% export to total production ratio is also amongst the few sectors that are net foreign exchange earners for the country. It is clear that the pharma sector is ‘Making in India and selling everywhere’ in the true spirit of Prime Minister Modi’s speech while declaring the initiative.

In this time frame the industry has also seen expressions of interest from both Indian and global companies to invest in it. For instance, while 175 projects worth Rs.1,000 crore have been announced in Gujarat, Telengana government has proposed to set up India’s largest integrated pharmaceutical city spread over 1,100 acres near Hyderabad. The state authorities expect investments to the tune of Rs.30,000 crore in this area. The government has also planned to set up a Rs.500 crore venture capital fund to boost domestic production and enable manufacturers to raise cheaper loans to start or upgrade their production facilities. In fact, a 19% year-on-year jump in foreign investments in the Indian pharmaceuticals sector (six months post Make in India campaign announcement) was a clear indication that Indian pharma was a much-discussed topic across boardrooms of global pharma majors and venture capitalists.

Promise vs. Potential

Despite all these positives, it seems all is not hunky-dory in the sector. The volume of medicines exported from India in FY2015 was 16.4% lower than that in FY2012. An analysis by The Dollar Business Intelligence Unit reveals that in the last four years, China and Mexico have overtaken India when it comes to export volume growth of pharmaceutical drugs. And this makes absolute sense, given that generics is getting commoditised and is today mostly a function of manufacturing capabilities.

Although while in the last nine months the industry has performed somewhat better than the corresponding nine months of the last year (thanks to ‘Make in India’), the industry is still sceptical of the long-term benefits of the initiative. For, it believes there is a need to move up the value chain from generics to drug discovery. But how? That remains to be answered. Studies reveal that on an average, Indian pharmaceutical companies spend 10 percentage points less on R&D than their global peers. What’s worse? Even these small amounts that Indian pharmaceutical companies are spending on R&D are mostly aimed towards discovering new processes to manufacture generics, rather than discovering/inventing new products. And there seems to be nothing in "Make in India" that addresses this issue. Unless the initiative is bolstered through incentivising drug development and complemented by low-interest rate regime, it will be difficult for the country to be self-sufficient in this sector.

Missing Chemistry

It would be no exaggeration to say that the chemical sector has played an important role in shaping the path of the Indian economic development. But has it been able to capitalise on this growth? Although the chemical industry in
India has grown over 20 times in last two decades, it has only exploited a fraction of its full potential. Per capita
consumption of chemicals in India is still much lower than its western counterparts – just about 10% of the global average.

A quick analysis of how the Indian chemical industry fared after the Make in India campaign was formally announced indicates that the initiative has not been of much help to the industry. In the nine months leading to June 2015, the weighted average monthly y-o-y change in the Index of Industrial Production (IIP) of the chemical sector was +0.6% against +0.2% recorded for the same time interval ending June 2014.

FDI trends too indicate that Make in India campaign has failed in garnering investor interest in the Indian chemical sector. Foreign investors continue to shy away from the sector. During FY2015 (which included more than six months of the campaign), FDI inflows into the sector were down 23.80% year-on-year to $669 million from $878 million in FY2014. In fact, three months into FY2016, and the FDI stood at just $271 million. Cumulative FDI equity inflows, from April 2012 to June 2015 were just 51% of what the sector attracted in FY2011 alone.

What's more? While import of chemicals into the country has grown at a CAGR of 20% over the last five years, domestic output has increased by just 4% during the period. This clearly calls for action on the government's part. Further, according to industry insiders, the policy framework is inadvertently skewed towards incentivising imports rather than promoting domestic production. A multi-layered and complex duty structure hinders the prospects of
making in India.

"While the Make in India initiative looks great on paper, we need to have more action on the ground to generate growth," Dr. B. R. Gaikwad, Chairman, Chemexcil, tells The Dollar Business. Well, we couldn't agree more!

 

Food Processing - Food Factory Of The World: A Revolution

With an enormous domestic market and government initiatives on one side and the absence of adequate infrastructure and regulatory mechanisms on the other, the food processing industry in India is struggling to realise the potential of becoming a global force to contend with.

Aadhira Anandh M. | October 2015 Issue | The Dollar Business

India needs to feed a billion mouths and more every day, and that too across a variety of cuisines. Naturally we are the second largest producer of food in the world, China being the largest. The food processing industry in India accounts for about 32% of the country’s total food market, and it is fifth largest industry segment in the country in terms of production, consumption and exports. India was ranked No.1 in world in the production of bananas, mangoes, papayas, chickpeas, ginger, okra, whole buffalo, goat milk and buffalo meat. The major resources that contribute to the food processing business are milled grains, sugar, edible oil and beverages.

Taste of the Future

As one of the 25 sectors chosen for the ‘Make in India’ initiative, the goal is to make India the food factory of the world.

As a part of this initiative the food processing industry is set to develop 42 Mega Food Parks. These Mega Food Parks, with common utilities like road, electricity, water supply, sewage facility and common processing facilities like pulping, packaging, cold storage, dry storage and logistics, are being promoted in areas with a strong agricultural resource base. Entrepreneurs will be able to rent out developed plots along with basic infrastructure in these Mega Food Parks, for establishing a food processing unit or an ancillary unit. Investors in these food parks will be supported by other initiatives like access to cheap capital through a Rs.2,000 crore fund set up by NABARD, as well as capital subsidies, tax rebates, depreciation benefits and reduced custom and excise duties for processed food and machinery.

Many domestic investors have shown a keen interest in the food processing industry, with ESSAR looking to invest about Rs.50,000 crore. The Future Group, Adani, ITC, Keventor Agro and many other firms are also in the process of investing in this vital sector.

But How Green is My Valley?

The situation presently, despite all the growth potential and government initiatives, remains bleak. In the nine months leading to June 2015, after the Make in India campaign was announced, the weighted average monthly y-o-y change in the Index of Industrial Production (IIP) of the processed food sector was +0.1% as against 0% for the same time interval ending June 2014.

Despite being the country with the second largest agricultural land in the world, hardly two-fifth or 40% of the agricultural land is irrigated with the rest being monsoon dependent. This not only makes food prices extremely volatile, but also makes farmers’ income unpredictable. Another way in which poor infrastructure severely distorts agri commodity market is poor road transportation and broken logistical networks, and the absence of basic storage and cold chain facilities. The regulatory regime has also been at times overreaching and lacking in standardisation of quality processes. The recent fiasco with respect to the ban on Maggi comes to mind. In an interview to a leading business daily in India, the Minister of Food Processing Industries Harsimrat Kaur Badal said that the steps taken by the Food Safety and Standards Authority of India (FSSAI) was affecting overseas investments. While the ‘Make in India’ initiative allows for 100% FDI in this sector, the sector has received only 2.51% of the total FDI into India over the last 15 years.

The year 2013-14 was a bright spot for FDI, with an unprecedented inflow of $3.98 billion into the industry with F&B giants like Coca-Cola and PepsiCo committing significant investments. We are only nine months into the initiative and it would be grossly wrong to be judgmental about it at this early stage. With its enormous potential it is likely that India will soon become the Food Factory of the world.

Energy & Power - Energising A Sector That's Anything

Uninterrupted power supply is the backbone of any production process. No power, no production! If the government really wants Make in India to take off, it needs to first fix the problems that are spoling the country's power sector party. Though it's already on the task (and the results are visible!), it's still got a long way to go.

Neha Dewan | October 2015 Issue | The Dollar Business

Think of a backward Indian village, which has for years been living with little or no light after the sunset, enjoying a 24X7 power supply. Imagine what it would be like if every house in the country, rural or urban, even the one in the remotest areas, gets uninterrupted power supply throughout the day. It would be like celebrating Diwali (festival of lights) every day. Isn’t it? But, is it possible?

Considering the current power scenario in the country, it might look like ‘mission impossible’, but initial signs of change have started showing – at least for now! For, Union Minister of State for Power, Coal and New & Renewable Energy, Manish Goyal too had recently claimed that his government will ensure that there is 24X7 power by 2019.

At a time when country is plagued by an acute power shortage, worsening fuel crisis and have enormous energy needs, Modi’s ‘Make in India’ initiative offers a huge opportunity to the players in the power sector, given the sector has diverse conventional and unconventional sources of power generation.

The ‘Power’ house

India’s total installed power generation capacity, as of March 31, 2015, stood at 272.5 gigawatts (GW). Of the total installed capacity, thermal power’s contribution stood the largest at 189.3 GW, followed by hydro at 41.6 GW, renewable energy at 35.8 GW and nuclear 5.8 GW.

Between FY2009 and FY2015, country’s total power generation capacity increased at a CAGR of 9.4%. Sounds good! But the question here is: howmuch of this growth can be attributed to ‘Make in India’ programme and what the initiative intends to do for the sector in future? Archana Bhatnagar, Associate VP – Development and Financial Services, Energy Solutions at Wartsila India says: “The increase in power generation from 635.4 GW to 673.6 GW in the first nine months after the launch of ‘Make in India’ is partly due to the government’s sustained effort to improve fuel availability and also because of the plants already operational. Any new investment attracted due to ‘Make in India’ shall have an impact when the plants under this programme get operational.” So, it's a long wait before we come to know the real impact of the initiative on the sector!

Heat Is On

Going by official data, India, with a production of 1,108 terawatt (TW), is the world’s fifth largest producer and consumer of electricity. And with a total demand expected to reach 1,905 TW by 2022, thermal power seems to be the only option currently to fulfill country’s enormous energy needs, given that India has 123 billion metric tonne of proven coal reserves. Despite the coal allocation scam casting a shadow on the power sector, the thermal power industry is playing a significant role in meeting the country’s power demand, considering that at present 60% of India’s power generation capacity is based on coal. Further, with public sector unit Coal India planning to invest at least $20-25 billion in the next five years in thermal coal, signs are definitely positive.

A New Dawn

Recently, a lot of government’s thrust has been on renewable energy as an alternative source of energy, to reduce India’s heavy dependence on coal-based power. In fact, over the years, there has been a qualitative shift in India’s focus from thermal, hydro, gas and nuclear power to other sources such as solar, wind and biogas to bring about a more varied energy mix. Ministry data highlights how the Centre has doubled the National Clean Energy Fund from Rs.50 per tonne of coal to Rs.100 per tonne for greater resources to finance renewable energy.

India has set up promising targets to take this agenda forward. The plan is to tap 175,000 MW of renewable energy by 2022, which would comprise 1,00,000 MW of solar power and 75,000 MW from sources such as wind, mini-hydel and bio-gased plants which may require investments of around $150 billion in the next seven years. The Ministry of New and Renewable Energy (MNRE) is looking to achieve overall renewable energy capacity of 41,400 MW by 2017. Researchers predict that this will create an opportunity worth over $10 billion in the renewable energy market till 2017. While the wind energy sector is expected to grow 10-15% per annum to meet the demand for power, solar energy is estimated to achieve a capacity installation of 20 GW by 2022. What's more interesting is that the private sector is expected to play a significant role as it is predicted to account for over 35% of the country’s power generation by FY2018.

Speed Breaker

And if you thought the Lion would have roared loud when it comes to foreign investments in the power sector, then you are in for a big disappointment. A quick glance through the FDI inflows into the power sector over five years shows that FDI in FY2015 contracted to $657 million from $1,066 million in FY2014. That's a big fall of about 38% and a serious concern for the sector!

Power Play

However, officials say more is on offer in the days ahead. An IBEF research paper on power sector found that over 290 international and domestic companies have investments plans worth $310-350 billion to generate 266 GW of solar, wind and biomass-based power in India over the next 5-10 years. This has rekindled hope of achhe din for the power sector. Announcements such as Inox Wind Ltd., an Indian wind turbine manufacturer, planning to invest Rs.200 crore by the end of next fiscal year to double its manufacturing capacity to 1,600 MW, India inviting US companies to invest in energy sector, Reliance Power signing deal with Rajasthan government to develop a 6,000 MW solar park over the next 10 years indicate the changing times for the power and energy sector.

Going forward, however, the growth of the power sector and further investments into it would depend on the kind of reforms the government brings in to strengthen transmission and distribution system and encourage renewable energy generation. Because it's the right reforms that will ensure that Make in
India dream doesn’t trip off!

Infrastructure - Fractured Infrastructure...

Delays in completion of highway projects, congestion and obsolete technologies used in ports, a railway network suffering from lack of modernisation and outdated assets – infrastructure has been a gout for India's economy. And despite it being touted as a focus point of the campaign, 'Make in India' hasn't been of much help either.

Satyapal Menon | October 2015 Issue | The Dollar Business

Highways and economic prosperity have always shared a direct relationship – you could always pick one and blame it for the failure of another. And though you can't really praise India poetically for the progress it's made in the task of putting in place National Highways, especially when you take China or Germany for sake of comparison, we can at least conclude that India has made progress when it comes to putting in place one of the most extensive road networks.

Interest amongst private investors to invest in highway projects however appears to be waning. But that has not deterred the government from awarding these projects with an intent to bring to reality fresh concrete and tar stretches of 10,000 km during the ongoing fiscal. Good news is, under the National Highway Development Programme (NHDP) Phase IV, a total of 17 projects for 1966.19 km at a cumulative cost of Rs.17,652.95 crore were awarded between March to July 2015.

Addition alright. But what about the fact that almost half (eight) of the projects were awarded in just the month of March 2015? Either this was a knee-jerk reaction to the increased allocation to building highways in the Union Budget (announced in the last day of the previous month; a 48% increase in outlay at Rs.42,913 crore was declared for FY2016), or it was the Modi government liberally expressing its intent in the form of some corrective action to improve on India's road infrastructure, to ensure that these so-considered lifelines live up to what's expected of them to give shape to the ambitious 'Make in India' plan!

What was however interesting about the contracts doled out was the fact that of the companies to whom the contracts were given, all of them were Indian! Turns out, foreign companies were not interested in being the winning bidders for whatever reasons. Clearly, all this seems a result of Make in India being an inspiration to the Indian government and companies, but not to overseas companies and investors!

In Limbo

The extent of highways constructed since the launch of Make in India does not reflect any path-breaking progress with length of roads laid between October 2014 and June 2015 (1242 km) only being a shade better than that during the same period a year back (1085 km). You could easily write-off that jump of 150-odd km as chance and not an effect of a solidly envisioned policy change. Reason being the mixed results of completion under various phases of National Highways Development Project. In the nine months leading to June 15, completion of roads under Phase III had fallen by 42% y-o-y to just 302 km, those under Phase IV had increased by 118% y-o-y to 667 km, while construction under Phase V had made negligible progress as compared to a year back. A year since Make in India was announced, the government hasn't been any more successful in achieving the road construction target of 30 km-per-day, for which an overhaul of NHAI is needed. And until this happens, roads and highways will never be catalysts to Make in India.

Look at another fact: as per NHAI data, the completion of about 28% of the projects (60 of 217 highways), some of which were started as way back as in 2011, are beyond schedule. In the case of a significant number of highway projects that were to be completed during 2014-2015, the completion deadline has been stretched by a year or two. Does that mean that Make in India has had any impact in accelerating the pace of work?

It would be injudicious to draw an absolute connect between Make in India and progress on the highways, since delays can also be attributed to time taken to acquire land and winning environmental clearances from concerned government authorities. Fastracking of processes to ensure timely completion of projects and provision of a viable bouquet of options to project developers to maximise their returns on investment from various road projects are the need of the hour.

Ports In Knots

The Shipping and Ports segment has over the last year been sailing on crests, troughs and at some points experiencing a comparatively sedate cruise (when parameters like cargo handled, capacity additions, container capacity utilisation, projects and policy initiatives are considered). In the past fiscal, there have been some positive signs in the name of performance patterns at the docks. But the flip side hasn't been too hard to miss.

In FY2015, traffic handled at Indian sea ports grew at a commendable 7.20% y-o-y to 8 million TEUs (twenty-foot equivalent units container). Sounds fantastic at first glance. Now compare this to China's figure – about the same level of growth of 7.13% on a base which is at least 23 times bigger. Surely, more is expected from India's ports.

Yes, capacity addition at India's major ports increased by 8.9% y-o-y during FY2015 to 871.52 million tonnes, but how about expecting a corresponding increase in capacity utilisation? The result is disappointing. Instead of rising, during the year when Make in India was announced, capacity utilisation actually fell by 2.7%! [Officials who spoke to The Dollar Business claim that capacity utilisation across major ports on average vis-à-vis capacity is quite healthy and in fact, at par with international standards.]

Another view that is being bandied about is that the performance of India's ports deserves some praise considering the lack of state-of-the-art handling equipment and machinery to cater to existing traffic. With normal functioning itself becoming a drain and strain on exchequers of a majority of the major ports, technology upgradation – though on the agenda – continues to be a non-starter for a majority of them. Proposals are being floated around for investments and foreign participation, but till date, the downpour of responses haven't begun.

Major ports across the nation's coast and even Inland Container Depots (ICDs) continue to remain incapacitated to work on schedule and suffer from berthing inefficiencies due to overcrowding and congestion. Traffic jams are a regular sight at many of India's major ports – and this scenario hasn't changed much in the past 12 months, Make in India speech or no Make in India speech.

Speaking to The Dollar Business, Guillaume Sicard, President, Nissan India, blamed the incapacity of Indian ports to handle traffic for his company's conscious decision to curtail production. "One needs to have a bit of maturity to improve volumes... Because if the infrastructure is underdeveloped and we double the exports, there will be traffic jams all over the ports," says he. Verbally, he couldn't have mirrored the truth better.

At present though, all is not unwell with the Shipping and Port segment. Around 15 projects related to capacity augmentation at cargo terminals and upgradation of handling machinery were completed in FY2015. During the four months of the current fiscal – April to July 2015 – five projects were completed. This reflects significant, if not substantial, value additions during the previous and current fiscals.

Below par productivity and performance of public sector shipbuilding yards have always been open to criticism with questions about their feasibility. The number of ships/vessels manufactured by shipyards in the country decreased from 23 in FY2013 to 16 in FY2014, and further to 7 in FY2015. But with Make in India being announced last fiscal, hope abounds for India's shipmakers. Replying to a question raised in the Lok Sabha, Pon Radhakrishnan, Minister of State for Shipping, had said (in March this year) that promotion of shipbuilding industry is a key component of the Make in India initiative of the government. “Suggestions have been received for promotion of local shipbuilding industry under the ‘Make in India’ initiative which include measures for financial assistance, grant of infrastructure status, domestic eligibility criteria, tax incentives and special dispensation for stressed shipyards,”
he had said. We do hope the suggestions are implemented. And that consolidation and improvement in efficiency at shipyards will follow in times to come.

There are four areas that need immediate attention as far as the Shipping and Port industry is concerned: (a) Improvement in efficiency of the available capacity should be priority; not capacity addition; (b) There is a lot left to be desired in terms of state-of-the-art berthing and cargo handling facilities in addition to some that have been put in place during the recent years; (c) One necessary focus area that's conspicuously missing from Make in India is warehousing [need we add more?] with improper Container Freight Stations (CFS) ailing most ports; and (d) There is much discussion about converting huge tracts of land at every port’s disposal into commercial ventures, but there doesn’t to be any such intention to create space for easing the omnipresent congestion and chaos related to container traffic. When it comes to connectivity, the need for rail connectivity has often been floated around with little or nothing practical happening.

Remains to be seen if Make in India and Sagarmala project (which promises modernisation of ports and infrastructure), bring about the needed transformation in years to follow. For now though, it's all about intent and little action and result.

Losing Steam?

After decades of mind-blogging operations, transporting billions of passengers and tonnes of freight to destinations across the length and breadth of the country, the Indian Railways should today have had one of the smoothest runs towards further consolidation and growth. But its journey had always been stymied by political populism and tokenism, the aftermath of which is threatening to dismantle the once sturdy organisation. On the surface, the Railways continues to function like a well-oiled machinery, but beneath is a narrative of development process slowing down – almost dead! – on its tracks.

The state of the railways was portrayed by a parliamentary panel constituted to examine the financial condition of railways. According to the panel “operating ratio of the national carrier had deteriorated to 93.6%. It had excess surplus of just Rs.3,740 crore in FY2014. But under provisioning for depreciation has resulted in piling up of throw forward of works concerning renewal of overaged assets of the order of Rs.41,871 crore.” The pace of electrification of railway lines have also been sluggish and in fact fell to a mere 25 km addition during FY2015 compared to 33 km a year back (and 152 km in FY2013). However, on the positive side, earnings in FY2015 recorded a significant increase of 12.2% y-o-y. 

Efforts from the government like permission of 100% FDI in segments like suburban corridors, dedicated freight lines, bullet trains, rolling stocks and passenger terminals (announced in Union Budget 2015-16), formation of a Special Purpose Vehicle with equity participation by state governments and the Railways, decision to generate funds through borrowings (from insurance & pension funds, multilateral & bilateral agencies etc.), permission to foreign private players to undertake trial runs of faster trains on Indian tracks, tie-ups with foreign governments to modernise railways stations across India, etc., demonstrate that the government is serious about reinventing the Indian Railways.

Despite the surfeit of projects on the anvil, one major area of concern is lack of interest among foreign investors.

Try a question – what do you reckon was the amount of FDI since the Make in India campaign was announced in September 2014? A. Rs.20,000 crore; B. Rs.10,000; C. Rs.5,000 crore; D. Rs. 1000 crore; E. None of the above; F. ZERO! The figure is shocking – not ZERO as you would imagine. [You thought so?] The answer is E – just Rs.104 crore! And of which 70% came in after the Union Budget was announced last, clearly proving that Make in India hasn't so far been able to delight foreign investors in the business of investing in Railways.

Talking of the Indian Railways and Make in India campaign in the same breath, all that seems for now is that the world's largest employment generating corporation is waiting anxiously for another couple of years to pass to be able to feed on the fruits of other manufacturing industries (simply transporting, that's it!). Or may be, Make in India engineers are secretly working day-in-and-day-out to surprise critics of Make in India with high-speed trains, dedicated freight lines and swanky stations. [You just never know!]

Problems are aplenty, progress has been poor. Delays in projects, lack of interest amongst foreign investors, operations at levels below capacity, and inefficiencies in many respects, India has much to 'make infrastructure' before it can Make in India. Highways, ports, railways – for these main branches of the infrastructure tree, the Make in India painted period of the past 12 months has meant more of loud, dry winds and less of rejuvenating spells of rain.